What Happened to Tax Reform at Mitt Romney’s Convention?

Yes, political conventions are costly anachronisms. But, with patience and time, one can learn quite a lot about a political party by watching, or reading, what the confab produces. Thus, a few thoughts about the GOP and fiscal policy as Republicans decamp from Tampa:

Mitt Romney: In last night’s acceptance speech, he sketched out his personal biography and delivered an effective brief on why we shouldn’t reelect President Obama. But, oddly, when it came to taxes Romney was nearly silent. And he said as much about what he would not do as what he would. A vow to not raise taxes on the middle class and a promise to reduce taxes on business was about it. Romney never mentioned tax reform, which had been a keystone issue for him earlier in the campaign.

His five-point job-creating plan included promises to achieve energy independence, enhance education and job training, reduce the deficit, enact new trade agreements, and encourage small business with lower taxes and less regulation. In this, the biggest of Romney’s campaign speeches, tax reform went the way of immigration reform. It was a non-issue.

Paul Ryan: The GOP’s vice-presidential pick is, sadly, not only running against Barack Obama and Joe Biden, he is running against himself. In his Wednesday night acceptance speech, Ryan was outraged that Obama cut $716 billion in future Medicare payments to hospitals and managed care companies to help fund the 2010 Affordable Care Act. “An obligation we have to our parents and grandparents is being sacrificed,” Ryan charged. Of course, the House budget written by Ryan just five months ago grabbed the same $716 billion from Medicare providers to reduce the budget deficit.

Ryan also blasted Obama for doing “exactly nothing” with the “urgent report” of Erskine Bowles and Alan Simpson, the chairs of the 2010 White House fiscal commission. Ryan, a member of the panel, voted against those urgent recommendations.

The GOP platform: I know, platforms are not to be taken seriously. Yet, they represent, in many ways, the aspirations of a party’s activists. The GOP platform, not surprisingly, endorses the outlines of Mitt Romney’s tax reform—extend the Bush-era tax cuts, cut marginal rates by 20 percent, repeal the estate tax and the Alternative Minimum Tax, and eliminate taxes on investment income for low- and moderate-income households.

But it goes far beyond that.

It would preserve special tax treatment for charities and the deduction for contributions to those organizations—the only tax preferences the platform would explicitly protect.

It says if Congress ever passes a value-added tax or national sales tax, it must also completely repeal the income tax.

It explicitly rejects the idea that tax subsidies are a form of spending. This is, the platform says, an “insidious” interpretation that “means that any earnings the government allows a taxpayer to keep through a deduction, exemption, or credit are equivalent to spending the same amount on some program.” This view reflects the challenge Romney would face should he try to eliminate some of these subsidies to pay for his tax cuts.

The rhetoric and policy papers that came out of Romney’s convention won’t be the last word on taxes or fiscal policy. But these events are forums for candidates to make their best case for why they should be president. And, if this convention is any evidence, tax reform is no longer a major part of Mitt Romney’s argument.

11Comments

Vivian Darkbloom :: 11:11 am on August 31st, 2012:

“It explicitly rejects the idea that tax subsidies are a form of spending. This is, the platform says, an “insidious” interpretation that “means that any earnings the government allows a taxpayer to keep through a deduction, exemption, or credit are equivalent to spending the same amount on some program.” This view reflects the challenge Romney would face should he try to eliminate some of these subsidies to pay for his tax cuts.”

Howard, your colleagues wrote the following yesterday on Feldstein’s tax calculation:

“Taxes would rise on families earning between $100,000 and $200,000 in Feldstein’s analysis because he considers a tax reform that would completely eliminate itemized deductions for taxpayers with income above $100,000.”

Eliminating deductions—that poses a real conundrum : is it an increase in taxes or a cut in spending? The TPC seems to agree with that platform that it is an increase in taxes. If so, in trying to eliminate those deductions, Romney would be up against not only the platform, but the TPC as well, even though the more those deductions are eliminated, the easier it is to reduce tax rates. But of course, the TPC would see it the other way: the more tax rates are reduced, the harder it is to eliminate expenditures.

Joseph Rosenberg :: 3:16 pm on August 31st, 2012:

Vivian,

Thank you for your enthusiasm. You seem to be under the impression that the order in which tax policy changes are evaluated affects the end result. That is incorrect. Start by convincing yourself that the following two statements are true:

Now convince yourself that either route you take leads you to the same place.

We appreciate your interest in our work.

Michael Bindner :: 3:56 pm on August 31st, 2012:

Tax reform is a subject for experts, not convention delegates – especially the group gathered in Tampa and most especially when the candidate is silent on the issue. I still suspect that the electoral math will convince Republican donors to push for tax cuts before the election – then again, I also thought Ron Paul had embedded way more people among the Romney delegates. Very powerful contributors have a lot to lose in inheritance and dividend tax increases happening automatically without a deal. Democrats have nothing to lose – especially if they may lose control of the Senate. If nothing else, sour grapes and the ability to raise a point of order against future tax cuts means the onus on reform is on the GOP.

Vivian Darkbloom :: 5:30 pm on August 31st, 2012:

Mr. Rosenberg,

That you for your interest in my comments.

Actually, if you have been paying attention to my remarks, you would have noticed that I have been saying for some time that when tax proposals contain both rate reductions and tax expenditure eliminations, the order in which you do the computation does not matter.

You wrote: Lowering tax rates reduces the potential revenue gain from *subsequent efforts* to broaden the tax base. (Emphasis mine). Why “subsequent” and “potential”? Most proposals, such as the Romney proposal, Bowles Simpson, etc., contain both elements in one package. Therefore, it is quite incorrect to say “subsequent efforts” or “potential gain”—the effort to do both is in one go and it is completely arbitrary to say which makes the other “easier” or “more difficult”. You’ve artfully shifted the focus from the order in which tax policy changes are *evaluated* to the order in which tax policy changes are *implemented*. You have set up the problem so that one occurs before the other and that the other occurs “subsequently”. That, of course, is completely arbitrary.

Establishing these arbitrary ordering distinctions is, however, useful in a rhetorical game if one favors one policy over the other. For example, if I were to favor broadening the tax base, I would stress formulation 1). If I were particularly skilled politically I might try to implement broadening the tax base first so that lowering the rates becomes “more difficult” when subsequently proposed due to the baseline shift and its effect on scoring but not necessarily on the *combined* budget effect. If I favored lowering the tax rates, I would stress formulation 2). If I were particularly skilled politically, I might try to implement lowering the tax rates first so that broadening the base becomes “more difficult” due to the baseline shift and its effect on scoring the latter separately. This is largely a baseline game.

If I were in favor of improving the functioning of the tax code for economic efficiency and understood that the two go hand in hand and complement each other, I would favor and propose both to be implemented at the same time and I would say the order in which the two are evaluated does not matter. That I what I have been saying all along.

The TPC recently devoted an entire paper stressing 1). Why is that so?

Vivian Darkbloom :: 5:37 pm on August 31st, 2012:

Michael,

Tax reform is a subject for everyone, not merely bureaucratic elites. I suspect that is one of the reasons this blog exists.

It is, however, a pity that it does not get more attention in this campaign–from either candidate. Perhaps that is because they share the same view you do—that it is “a subject for experts, not convention delegates”. Or perhaps they are reasonably concerned that if they do raise the subject at all, the media, including the experts in the media, will either distort their proposals or read into their proposals things that are complete inventions and that therefore the political risk of raising the subject at all is too high.

It’s a real shame.

Michael Bindner :: 8:04 am on September 1st, 2012:

I suspect that if Romney gave his best professional opinion on tax policy, he could never win as a Republican.

Ralph H :: 9:52 am on September 1st, 2012:

I do not often agree with you but you are spot on. I would further add that being honest on taxes will not work for either party or in the general election. Think Mondale and Bush senior. The winner will either duck the issue or put himself at risk politically for doing the right thing. Meanwhile its fun to speculate as to the better solution!

Anyone really interested in tax policy and tax reform should read The Betrayal of the American Dream by Donald L. Bartlett and James B. Steele. This should be must reading for both our candidates and they should be forced to discuss the findings of these two Pulitzer Prize winners who have been on this problems for decades. The Philadelphia Inquirer ran an excerpt of the book and an Q&A with them as to what can be done to get our country moving. They offer some very sound steps with reasoning as to why. Trust me, no one in Congress and the two candidates are talking about these solutions. Both candidates should be questioned directly on the conclusions reached by these authors and their recommendations to solve our nations problems.